we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.

Professor Pettis predicts:

* BRICS and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
* Over the next two years Chinese household consumption will continue declining as a share of GDP.
* Chinese debt levels will continue to rise quickly over the rest of this year and next.
* Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
* Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
* If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
* Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
* Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
* European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
* Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
* Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
* Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.

It is my view that even if this socio-economic and political crisis strikes China, Global awareness of the grave implications of continued reliance of carbon based energy sources will rise rise rapidly. Thus at the same time China may faces an economic crisis. Even if more conventional estimates of the developmental course of turn out to be correct, China will be faced with the problem of shifting its energy system to post-carbon energy technologies.

Thus what ever the course of the Chinese economy, the need to replace energy from fossil fuel sources, with energy from post carbon sources will start to become acute within the next ten years. Thus what ever its economic situation, China will require rapidly scalable energy technologies that can replace coal and other fossil fuels. At the moment, China appears committed to developing LFTR technology. On February 2, in the wake of the Chinese LFTR announcement I stated on Nuclear Green, I stated:

The potential promise of thorium and the LFTR technology can rapidly be brought into the effort to prevent further global climate change. China, perhaps more than any other country has realized the importance of energy in increasing the wealth of its citizens, and making life for its people better. At the same time, the Chinese have paid an enormous price for their reliance on fossil fuel technology. As many as 500,000 people die every year from fossil fuel related causes. Global Warming represents another large threat to the well-being of the Chinese people, and although China has made a large commitment to renewable energy sources, the Chinese leadership is aware that renewables cannot produce anything like the amount of energy that the Chinese people need to bring their standard of living to that enjoyed by people living in advanced Industrialized and post-industrial societies. At the same time, the Chinese leadership is far more technologically oriented than the leadership of the United States or Europe.

Thus, the leadership of China is far more open to promising new technology. In addition China has a large thorium supply that comes from its rare earth mines, and so far has not found any use for thorium. The LFTR allows China to kill two birds with a single thorium stone. First it offers a potential source of vast amounts of environmentally clean and safe energy at a low cost, and secondly it allows China to take advantage of an unused resource, which can easily replace coal. LFTR technology has the potential of providing China with abundant energy at a very low cost, and might solidify Chinese economic, cultural and political dominance of the world for a long time to come.

What will appeal to Chinese leadership about MSR/LFTR technology during the next decade is its potential for rapid production in large numbers and at a low cost. Uranium fueled MSRs offer a technology that is almost ready for mas production today.

The MSR core is very simple, requires few materials, and can be built with a tiny fraction of the labor required by conventional reactor cores, Other optional parts of the MSR may be more complex, but this is in no small measure because radioactive fission products can be continuously cleaned from the MSR core. The added cost of fuel salt cleaning can be balanced by a diminished cost of other safety features. Both fuel cleaning and reprocessing can be included in the MSR package. Thus the MSR can eliminate the necessity for building a separate large and complex fuel reprocessing facility. Molten Salt Reactor researchers world wide have repeatedly touted their safety. Low cost underground placement would further enhance their safety.

One the other hand the low cost of MSRs, their scalability and the sustainability of of LFTR technology would make LFTR technology an extremely valuable source of post-carbon energy, and quite possibly the dominate energy technology on earth asa soon as 2050. The paths to LFTR development were charted at Oak Ridge National Laboratory during the 1970's and are well understood. In terms of the potential cost savings that could be achieved through the adoption of LFTR technology the cost of its development would be extremely small, and indeed a number of large American companies could afford to finance LFTR development without government assistance, if they chose to do so.

Nor would MSR/LFTR development take long, if a business as usual approach were abandoned in favor if a more intensive approach. My estimate that if MSR/LFTR development were commenced in China this year, MSRs could be ready to start rolling off production lines by 2020. With factory based mass production, the replacement of carbon based electrical generation could be accomplished in a short time. In addition, to use in electrical generation, LFTRs and be used as an industrial process heat source. They can be used to produce hydrogen, and carbon based liquid fuels from atmospheric CO2 and water. They can also be used to power ships.

The principle obstacle to MSR/LFTR development is ignorance and human incredulity. Until recently Molten Salt Reactor technology was not even be mentioned is the training of reactor physicists and nuclear engineers. Past statements about Molten Salt Reactor technology form the Department of Energy are filled with misinformation While Secretary of Energy Chu recently made statements about the LFTR that suggest he had been given the same misinformation. Even when informed about the potential some people are incredulous, or insist that it would take to long to develop to be a practical solution, or that it is too technologically challenging. The Chinese have a significant advantage, because its technologically sophisticated national leadership is aware of the potential that the LFTR offers.

The LFTR approach to world energy issues amounts to a paradigm shift. What will be required for the success of a LFTR based approach is the spread of knowledge about the LFTR and of a vision of LFTR potential. Knowledge and vision cannot simply be spread by policy, and indeed in the United States policy has been an impediment to its spread, until the policy makers themselves are educated, and catch a little of the vision. Once that knowledge and the vision are discovered by enough people, as appears to be the case in China, a tsunami of change will follow that will rapidly sweep us forward into the post carbon age.

Thus by continuing its commitment to develop LFTR technology, Chinese leadership, either Communist or democratic, will almost certainly assure continued Chinese economic development, whatever short run national economic problems emerge in China.

No accurate estimate of China's Thorium reserve is available, but thorium is a common mineral in rare earth mining tilings, and China's rare earth mining industry is by far the largest in the world. My guess is that China holds enough thorium above ground now, to power the entire Chinese economy for hundreds if not thousands of years. The energy potential of this internal, low cost energy source is attractive to China, which like India is dependent on foreign uranium sources for a uranium powered economy, would prefer to have total control of its energy resources.

Historically China has been economically self contained, and although Chinese economic development has focused on international trade, Professor Pettis offers the view that future Chinese economic development will focuse on the growth of internal markets. In addition the Chinese government is under great though largely hidden pressures to clean up environmental problems. Shifting from coal to Thorium would solve serveral environmental problems at the same time. A shife from trade to internal economic grown and increasingf environmental concerns thus point to a rational for thorium energy use as a matter of national policy.

The historic foreign policy of China has usually been to exercise hegemony over its neighbors but to not incorporate them into its empire. In addition, the Chines state has usually defended its territory rather than sought expansion. The present Communist government has acted to insure that traditional Chinese imperial territory remain part of China. The 1949 invasion of Tibet, and the continued Chinese insistence that Taiwan is part of China are evidence of that poi icy, The Chinese Government is also concerned about border defenses, and the 1962 war between China and India was motivated by Chinese desires to obtain defensible southern borders.

Finally China has cooperated with American Nonproliferation policies only when it is in Chinese interests to do so. China has in the past been willing to transfer of nuclear weapons technology and even weapons grade nuclear materials, when the development of nuclear weapons by other states furthered what Chinese leaders viewed as China's national interest. China has viewed India as a potential enemy, and thus its allied itself with another enemy of India Pakistan. China reportedly provided both nuclear weapons design and U-235.

Thus China appears wholly unwilling to adopt nonproliferation goals, that run contrary to its national interests, or the national interests of Allies that it might wish to see possessing nuclear weapons. Furthermore China is unlikely to prefer nonproliferation over national economic or energy policies. To the extent that American policy toward the thorium cycle as a proliferation issue runs contrary to Chinese trade or energy goals, China will be unwilling to give preference to American goals over its own.

Thus if American thorium related nonproliferation policies are contrary to Chinese interest, China can be expected to oppose and even undermine them. China may well regard its own internally developed LFTR as a legitimate trade item, even without proliferation controls preferred by the United States. The United States will have no choice except to adapt its nonproliferation policy to the sort of nonproliferation order that China is willing to accept. China, like India will most likely be willing to support a nonproliferation agreement that embraces thorium, but that order may be quite contrary to current US nonproliferation policy.

Thus both India and China have in the past been notably independent from American nonproliferation policies and goals, and can be expected to maintain that independence. There growing economic power will make that opposition increasingly difficult for the United States to impose its nonproliferation goals on the international community. Both India and China have interests in developing a Thorium cycle nuclear power technology, and it is very likely that any future nonproliferation order will conform to Chinese and Indian policy goals with respect to thorium fuel cycle technology.

15 comments:

It would certainly be interesting to have any information at all on the Chinese thorium program. I wonder when we can expect news. I suppose it's possible that it will remain a secret until/if they have a working prototype to announce. Any kind of progress report would be welcome though and might inspire work elsewhere.

I wonder also why there does not seem to be any official interest in India for a molten-salt thorium reactor. They have invested an awful lot in their (seemingly complicated) plan to use thorium. It would be a shame if this prevented an examination of the molten-salt alternative.

Interesting economic predictions, if obvious. The dire situation for Europe and the USA etc was known and understood well over a decade ago, so the good prof is repeating what we already knew to be in play way back then. What is of more interest to me is how the next decade of economic opportunity is going to play out. I've already made my preparations and investments. Hope you guys have your houses in order as well.

The causal element of all this economic trouble remains with governments and their central bank partners. They create severe economic instability along with the impoverishment that accompanies such. Notice that the bubbles and busts that have been experienced in the USA since the creation of the (anti-Constitutional) Fed are far more frequent and severe than conditions prior allowed. The trouble for the rest of the world is that it is enjoined to a corrupt economic and central banking system relying, as it does, on US fait money paper as special reserve currency. This is in the process of being removed, but the process is not instantaneous and is going to have to play out over time. Two issues to research if you really want to understand the structure: fiat money and fractional reserve banking. Rothbard's text on banking is a good place to start.

The expectation at this stage is that the USA will enter a lost decade or, more likely, two, of stagnation and impoverishment. Living standards will drasticaly decline for the majority and will not recover. In real terms wages and salaries and incomes in general will fall, especially severely for the young, the retired, welfare recipients and the low skilled (eg entry level and labourers). Anti-trade practices at the US border will increase the severity of the hardship, as will likely increases of military adventures and agressive wars waged upon various "foreigners" outside the borders of the USA. Increasingly the violence will blow back in a variety of unexpected modes. All this will cost and the US debt will continue grow and grow until...

Continuing----The China situation is interesting. The govt and central bank have come to a belated realisation that they have created a domestic bubble having followed a policy of monetary inflation. Added to this is the inflation they imported into the country by accepting US currency as payment for exports and purchasing US govt debt. Now they are trying to deflate their coastal property bubble and slowly reduce their exposure to US debt. Is it too late to avoid a bust for them? If it is then the like of Australia and Canada and the rest of the BRICS are in for some real seriously bad times...

As far as the use of fossil fuels is concerned, there is not going to be much change. China (and India) need them. Going without would result in total economic and social devastation with tens of millions of deaths in mere months. There is no going back to rural survivalism and the peasant struggle for life now. To survive oil and coal energy are must haves. There are no alternatives whatsoever and won't be for the next decades. That both China and India are doing solid long term (30 years plus) supply deals with various producers demonstrates an acute awareness of the facts of reality they face. That both have been bilched out of their supply agreements in Libya does not bode well for international relations between the "West" and Asia. Stay tuned.

Thorium technology surely must have appeal to Chinese investors and entrepreneurs. There is a local supply of thorium (nice to have) and the reactors can be much smaller than competing types. If it is indeed possible to produce large numbers of them to a standardised design, then the cost is likely to be attractive indeed. Presently technology alows people to produce "lots of" small things far more economicaly than "one of" bigguns.

I suspect you are right that China isn't going to give a toss about arbitrary US govt non-proliferation policy and such like promotions. After the Libyian rortfest it is likely they will increasingly look to their own increasingly independent path domestically and internationally as well. Could be that thorium has a future for them. That could be good. An increasing hostility to the West would not be as pleasant- especially if it turned into a military muscle competition.

As the Chinese saying goes, "May you live in interesting times."

Sione

BTW. In regards to how things are changing in the USA over the past few years, some local wit writes:

Yesterday I went to the airport. The captain pointed to some of the passengers and said to me they were American tourists. I asked how he knew that. He answered, "See how they are holding up their pants? See how they are walking in socks. Belts off. Shoes off. Americans. They come from Land of the Free." Indeed. Times are changing.

Yeah, well the great depression back when government wasn't doing anywhere near as much regulation as it is now wasn't anywhere near as bad as the recent crisis (oh wait, it was worse, not to mention that much of the problem recently was due to deregulation).

Anonymous, you state that "The causal element of all this economic trouble remains with governments and their central bank partners. They create severe economic instability along with the impoverishment that accompanies such." In fact during the 19th century serious economic instability repeatedly emerged in the absence of central banks. Economic historians have noted that this instability was at least partially attributed to a lack of central control. During the 20th century the national and international economies were far more stable especially between 1940 and 2000. However especially by 2000 that stability was clearly breaking down, and the very poorly regulated Chinese banking sustem ejoch has counted on an eternal bomb to cover all of its sins, was bringing the international banking system down.

"Yeah, well the great depression back when government wasn't doing anywhere near as much regulation as it is now wasn't anywhere near as bad as the recent crisis (oh wait, it was worse, not to mention that much of the problem recently was due to deregulation)."

Anon, My parents lived during the depression, and I was born just after it ended in 1942. Your statement is a huge bunch of crap. By any objective standard the great depression was far, far worse. Between 1929 and 1932 Industrial production dropped by 46%, wholesale preces dropped by 32%m international trade dropped by 70%, and unemployment increased by over 600%. In 1933, 25% of the workforce was unemployeed. The mid 1930's recovery was short lived, and by 1938 unemployment had again risen to nearly 20% of the workforce, while industrial production fell by 30%.

While you are knowledgeable about aspacted of nuclear thorium techology you are not as well versed in matters economic.

The claim that, "in the 19th century serious economic instability repeatedly emerged in the absence of central banks" is dead wrong.

Financial busts prior to the establishment of the Fed during the period of interest:181918251837184718571868187318841890190119071910

If you research up what happened in each case you'll find that each was preceded by an inflationary boom. Each boom was caused by govt acting in concert with a central banking institution (that is, an institution awarded special priviledges to create fiat money without sufficient specie to back it). The activity undertaken was to inflate the currency, or, more accurately, to print funny money. It is a form of counterfitting- the commission of a fraud upon the public by a debasement of the means of exchange. The process introduces a transfer of wealth from productive enterprise and savings to cronies, insiders and to government consumption (quite often for wars and military adventures etc) and waste. While each central bank wasn't necessarily a continent wide arrangement (such as the Fed is presently) each and every time, the key attribute was the partnership with govt (sometimes national, sometimes State or regional) wherein a priviledge of counterfitting was legalised for specific parties. Interestingly the Fed is the fouth such structure erected in the USA. Previous efforts share the results this one will achieve, they collapased... The tragedy is the destruction and poverty they generate.

Anonymous, you claim a lot, but I am not sure that reputable economic historians would agree with you. The panic of 1837 is tracable to the mismanagement of currancy by private banks that issues it, and inflated it. Andrew Jackson's vindetta against central banking was partially to blame, but that goes against your thesis. I suspect that your conclusions are ideologically driven, and that you are under the delusion that if not under some mythic governmental control, national economies will perform perfectly with no problems.

As far as severity of economic busts are concerned... well, in the presence of the Fed regular booms and busts have become a permanent experience in the economy. The frequency and severity of the crises are far worse than previous experience (the Great Depression being exactly the example to demonstrate the point).

Since its design and creation at Jeykl Island, the promoters of the Fed have clainmed that its role was to stabilise the economy and defend the value of the currency. The real experience is that the US dollar is now worth less than 7% of what it was at the time of the erection of the Fed. This has enabled the dilution and destruction of savings, elimination of much inter-generational wealth and a loss of real capital (the availability of which, for productive enterprise, is now more restricted than it otherwise would be).

An excellent analogy to the actions of the Fed in the economy was delivered by Jim Rogers who stated that it represented the consumption of "next season's stock of seed". What is being experienced in the USA is a result of decades of consumption of real capital, leaving less and less or even "nothing to plant next year." The farm is harvested and there arn't seeds to plant now, so what happens next.....?

--I'm surprised that you'd blame the Chinese for the present Great Recession. As poor as aspects of their banking system may be, it was by no means the cause of the serious economic train-wreck that is Europe or the USA presently. For a start China's exports to the USA represent a tiny portion of that economy (sub 8% and probably less than that). China's bankinbg system just hasn't got the horsepower to create such international carnage.

In conclusion, the USA has a socialist banking system wherein powerful commissars consider they are knowledgeable enough to determine the correct value of interest rates, the correct quantity of money that should be present throughout the economy and its value. That a claim of such omniscience is accompanied by such total failure should be no surprise.

Anonymous, you have yet to provide any proof for your theory, and it certainly does not seem to work for the panic of 1837, which I am starting to look at in depth. What was the central bank that contributed to the Panic of 1837 in your account? Was it the Second Bank of the United States? Or was it the 23 "Pet Banks" that Jacksons government deposited Federal taxes in?

I agree 100% with Sione. I cannot provide proof, but it is most logical. About 1910 the industrial governments of the world gave up their right to print and control money up to the banks. The banks created a system where the only way new money could be introduced into the economy was by issuing a loan, complete with interest. This is non-sustainable. All loans have to be paid back with interest, but the only way to get new money is to borrow more. The only way to have a sustainable economy is to be able to introduce new money at no cost. This is best done by governments that do so responsibly, that is at a rate designed to create zero inflation. Whether the money is fiat or not is unimportant, there is nothing wrong with the government printing the required amount and spending it on social programs. Over printing will cause inflation, under printing will cause deflation. Government printed money does not have to be paid back, so will not contribute to debt. This is a sustainable system.

As a Canadian, I am cheering for the Chinese. I believe that developing the LFTR is one of the most important things that can be done for the world economy. I wish that my government or the USA would do so, but there seems to be no will in Western societies to to the right thing, only what makes the most profit. My feverent hope is that after the Chinese have perfected it, they will sell it to us, if our government becomes wise enough to recognize its advantages.